Health Reform Law Programs to Help Health Plans

One aspect of the health reform law that engendered some significant controversy was the construction of programs to provide financial stability to health plans who participated in offering coverage on the exchanges.  As with other health industry sectors, these programs appeared to be in essence bribes offered to the plans to encourage the plans to support the law.  An analysis from Mark Farrah Associates gives us some idea of the scale of benefit to payers, most of which are very, very large corporations with substantial financial resources. (MFA Analysis)  The programs included reinsurance, which was designed to prevent large premium increases in a succeeding year due to unexpectedly high claims in the prior year.  This program runs for three years, from 2014 to 2016, with a declining per enrollee contribution from the health plans and declining payouts over the three-year period.  $10 billion was to be available in 2014, $6 billion in 2015 and $4 billion in 2016.  The other major program adjusts payments to health plans based on the illness burden of the enrollees they attract and basically takes money from plans with healthier populations and gives it to those with sicker ones.  It has an indefinite life, but Congress has threatened to defund it.

According to the MFA analysis the bulk of the payments in the reinsurance program in 2014 went to the very large health plan companies.  HCSC, the large Blues company covering Illinois and Texas, among other states, received $943 million; Anthem got $777 million, Humana $549 million, Blue Shield of California, $363 million and Aetna $359 million.  Not bad and a nice contributor to earnings.  The risk-adjustment program was harder to track, but it appears Aetna, Anthem, and Humana were the largest contributors, while the Florida Blue Cross plan received $262 million, UnitedHealth $237 million, Blue Shield of California $149 million and Cigna $108 million.  These are all companies that should be able to have the actuarial resources to accurately set rates and that can bear a little financial variability in claims costs from year-to-year.  While they are designed to be industry-funded, they do raise administrative expenses and complexity under the reform law and when the reinsurance program ends and if the risk adjustment is defunded, consumers will likely see even more premium increases and volatility.